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How to Buy US Treasury Bonds Directly

Understanding the difference between coupon interest and price gains is a good place to start before buying a US Treasury security directly.

What a US Treasury security is

Treasury securities are debt issued by the US federal government. Bills mature in 4 to 52 weeks and are sold at a discount to face value, notes mature in 2, 3, 5, 7 or 10 years, and bonds are currently issued with a 20-year term (30-year bonds are also auctioned by the Treasury). TIPS adjust principal with inflation, and floating rate notes reset with short-term bill rates. Because the US government backs them, they are widely treated as one of the lowest default-risk assets and commonly serve as a safe-asset building block in a portfolio.

Two main ways to buy them directly

A US person can buy new-issue Treasuries through TreasuryDirect.gov, the Treasury's own platform, with a $100 minimum in $100 steps and no commission; opening an account requires a Social Security number, a US address and a US bank account. Securities bought there generally must stay in the account for a period (45 days is commonly cited) before they can be transferred to a broker for sale. An investor outside the US, or a US investor who wants to trade existing bonds easily, typically buys and sells through a brokerage account instead.

Coupon interest vs a price gain from selling early

Most Treasuries pay a fixed coupon twice a year, which counts as ordinary interest income. If you instead buy on the secondary market below face value and sell before maturity at a higher price, that difference is generally treated as a capital gain rather than interest -- though the exact category and rate depend on your own country's tax rules, so check current guidance rather than assuming a specific treatment.

Zero-coupon Treasuries (STRIPS)

A zero-coupon Treasury, often created by splitting the coupon and principal payments of a regular bond into separate pieces, pays no periodic interest -- you buy it at a discount to face value and receive the face value at maturity. In the US, this type of bond typically generates taxable 'phantom income' each year in a regular taxable account, even though you receive no actual cash until maturity, so it is often held in a tax-advantaged account instead.

Currency risk for investors outside the US

Because Treasuries are denominated in US dollars, an investor whose home currency is not the dollar takes on exchange-rate risk on top of the bond's own price movement -- a stronger dollar boosts the return once converted back to your home currency, and a weaker dollar reduces it.

What to check before investing

How long you plan to hold the bond matters, since selling before maturity exposes you to price risk, while holding to maturity does not. Minimum purchase size, which specific maturities are available, trading fees, and how the security is held -- in your own name at TreasuryDirect versus in 'street name' through a broker -- all vary by platform, so compare the specifics before choosing one.

How new Treasuries are priced at auction

The Treasury sells new securities at regular auctions. Ordinary buyers use a non-competitive bid, which accepts whatever rate the auction produces, so you do not have to guess the yield. A bill bought at 98 per 100 of face value and held to maturity earns the 2 point difference, which is the return, and the stated yield annualizes that amount over the bill's term.

Inflation-linked and floating-rate options

Treasury Inflation-Protected Securities (TIPS) are issued in 5, 10 and 30-year terms, and their principal rises or falls with the Consumer Price Index, so the interest payment is calculated on the adjusted principal. Floating rate notes have a two-year term and pay quarterly with a rate tied to 13-week bill auctions. These suit investors worried about inflation or interest-rate swings, but their yields and tax treatment differ from regular notes.

Longer maturity means more price sensitivity

A 30-year bond moves much more in price than a 3-month bill when interest rates change. As a rough rule, a bond with a duration of 10 loses about 10 percent of its price if yields rise by 1 percentage point. Holding to maturity removes the price effect but not the opportunity cost of being locked into a rate.

Building a ladder of maturities

A ladder splits money across different maturities, for example one-, two- and three-year notes, so that part of the portfolio matures regularly. When a rung matures you can reinvest at current rates or use the cash. A ladder reduces the risk of locking everything in at one moment and gives predictable cash flow.

Treasury funds and ETFs are another route

Instead of buying individual securities, some investors hold a fund or ETF that owns Treasuries. A fund offers instant diversification across maturities and easy trading, but it has an expense ratio, never matures at a fixed date, and its price fluctuates, so the return is not guaranteed the way a held-to-maturity bond is.

Two different routes depending on who you are

A US citizen or resident with a US bank account and Social Security number can buy directly from the government at TreasuryDirect.gov, with no broker and no secondary-market trading. Everyone else -- including US investors who want to sell before maturity -- typically goes through a brokerage account instead, where a wider range of existing issues is available but you may pay a trading spread or commission.

How the interest is generally taxed

In the US, Treasury interest is subject to federal income tax but is generally exempt from state and local income tax, which is one advantage over comparable state or corporate bonds for a US resident. Investors outside the US are taxed under their own country's rules for foreign-sourced interest income, which can differ significantly from the US treatment described above. This page explains general principles only, not tax advice for your specific situation -- tax rules change and vary by country, so confirm current rules or consult a tax professional before investing.

Buying through a broker as a non-US investor

Most large brokers that accept international clients offer access to Treasury auctions or the secondary market. Compare the commission or spread, the minimum order size, and whether the broker holds the bonds in a custody account in your name. For tax purposes, many foreign investors certify non-US status on a form such as the W-8BEN. US-source interest on Treasuries generally qualifies for the portfolio interest exemption from US withholding for nonresident investors, but the investor's home country may still tax it. Confirm the treatment with the broker and a local tax adviser.

Risks that remain even though default risk is low

Treasuries have interest-rate risk (prices fall when rates rise), inflation risk (fixed payments lose purchasing power) and, for non-US investors, currency risk. They also carry reinvestment risk when a bond matures in a low-rate environment. Low default risk does not mean no risk of losing money on a sale before maturity. Nothing here is investment advice; consider your time horizon and consult a licensed adviser.

Frequently Asked Questions

Can you buy US Treasuries with a small amount of money?

Through TreasuryDirect, the minimum purchase is as low as $100. Through a brokerage account, minimums and whether fractional purchases are supported vary by broker, so check the specific platform you plan to use.

What does it actually mean that a bond's price and its yield move in opposite directions?

When market interest rates rise, newly issued bonds offer a higher coupon, which makes existing bonds with a lower fixed coupon less attractive at their original price -- so their market price falls to compensate, and vice versa when rates fall. This relationship affects anyone selling a Treasury before maturity, though it does not affect an investor who holds to maturity and receives face value regardless.

Is Treasury interest exempt from state tax?

For US taxpayers, interest on Treasuries is subject to federal income tax but generally exempt from state and local income taxes. The rules for investors outside the US depend on their own country.

What is the difference between buying at auction and in the secondary market?

At auction you buy new securities directly from the Treasury at the rate set by that auction. In the secondary market you buy existing securities from other investors at the current market price, which may be above or below face value, and the yield you earn depends on that price.